Raiden Network

Raiden Network is building a second-layer payment solution for the Ethereum blockchain. The project builds off the same technological innovations pioneered by the Bitcoin Lightning Network by facilitating transactions off-chain, but focuses on support for all ERC-20 compliant tokens. Participants will transaction directly through payment channels without needing to settle transactions on the blockchain, helping to avoid bottlenecks related to processing numerous and often small payment transactions. Users hedge themselves against counterparty risk by swapping cryptographic "promissory notes" that can be pushed to the Ethereum blockchain if circumstances require. Invalidation of previous notes when new ones are created prevents any party from gaming the system.

At first, the system might not be very appealing unless two participants plan to remunerate very frequently, since opening a new channel requires locking up assets via an on-chain broadcasted transaction. To alleviate this, the team plans to integrate the ability to route channels deterministically through multiple parties. Users having unique channels with many participants means less money in their wallets for discretionary spending, significantly reducing the versatility of their funds. Raiden plans to alleviate these concerns by introducing an effective pathfinding algorithm between network participants. If the relationship between users is extremely isolated, the system can keep introducing more intermediaries to form a lineage robust enough to facilitate payments.

The network plans to use the Raiden Network token (RDN) to transmit payments more conveniently for end users, while simultaneously offering incentive structures for liquidity providers and full node operators. While the token is not a functional requirement for the system, the team hopes it can provide incentives for network participants. For example, light clients that don't want to run full stack nodes can send small fees in the form of RDN to peripheral service providers (i.e. pathfinding and monitoring services) as compensation for utilizing their infrastructure. The token's primary utility will be for these pathfinding and monitoring services. By design, participants area incentivized to relay these peripheral fees using RDN (compared to Ether or other ERC-20 tokens) due to lower transaction costs.